Electronic Data Systems - WACC Analysis

Electronic Data Systems (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Electronic Data Systems's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Electronic Data Systems's investment risk. WACC Formula = Cost of Equity (CAPM) * Common Equity + (Cost of Debt) * Total Debt. The result of this calculation is an essential input for the discounted cash flow (DCF) analysis for Electronic Data Systems. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Electronic Data Systems before they make value investing decisions. This WACC analysis is used in Electronic Data Systems's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Electronic Data Systems's company valuation.

WACC Analysis Information

1. The WACC (discount rate) calculation for Electronic Data Systems uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Electronic Data Systems over the long term. If there are any short-term differences between the industry WACC and Electronic Data Systems's WACC (discount rate), then Electronic Data Systems is more likely to revert to the industry WACC (discount rate) over the long term.

2. The WACC calculation uses the higher of Electronic Data Systems's WACC or the risk free rate, because no investment can have a cost of capital that is better than risk free. This situation may occur if the beta is negative and Electronic Data Systems uses a significant proportion of equity capital.